Inheritance burden to fall on third of families

One in three households are now liable to have to pay inheritance tax on their estate when they die following soaring property price growth, research has claimed.

An estimated 8.2 million households own property and other assets that are worth more than the current £275,000 inheritance tax threshold, according to life insurer Scottish Widows.

The group said the average household wealth now stood at around £258,000 after taking into account debt levels.

It added that although just 6 per cent of estates currently paid the tax, soaring house price growth in recent years meant around 34 per cent of people would have to pay the 40 per cent tax when they died.

The group said regional variations in property prices also meant inheritance tax was rapidly becoming a tax on people in London and the South East, with 68 per cent of those in the capital now liable for it and 38 per cent in the South East.

At the other end of the scale, only 23 per cent of people in the North would currently have to pay it if they died and just 15 per cent in Scotland would be liable.

The research found that 43% of people have no idea what the current inheritance tax (IHT) threshold is, and nearly three-quarters have taken no steps to try to minimise the amount they will have to pay.

One in five said this was because they were too young to have to worry about it, while 10 per cent said the issue had never occurred to them and 13 per cent said they were not worried about leaving an inheritance.

Around 3 per cent admitted they had not made any plans because they did not want to think about dying.

Anne Young, tax expert at Scottish Widows, said: "Currently IHT is paid by just 6 per cent of estates.

"However, the rapid rise in house prices has pushed millions more above the IHT threshold without them even knowing it. The average household wealth now stands perilously close to the IHT threshold.

"With this in mind, it is vital that people take action. For many people it is possible to cut or even completely avoid IHT with just a few simple steps. The first and most obvious of which is to make a will."

Among the 21 per cent of people who had taken action to reduce the amount of tax they paid, just over half said they had done so because they wanted to avoid handing money over to the Chancellor, while two-thirds said they were motivated by wanting to leave as much money as possible for their dependants.

Ms Young said: "IHT is a tax on the apathetic. Using a will to make use of the nil rate IHT band on the first death for a couple, or to set up a simple trust, will only cost a few hundred pounds.

"For many people it could be the most cost-effective financial planning they ever do."